Luxury in China still the Tip of the Iceberg
Many luxury brands in China haven't been smiling much lately. In years gone by, the world's big peddlers of luxury have been broadcasting double digit annual growth in China - this year, the market is picked to grow just 2.5%. The Chinese Government's crackdown on corruption, lavish events and gift giving has seen sales of Swiss watches, premium alcohol and mega brands such as Gucci actually decline.
Regardless, there's been plenty of grinning from some of the luxury brands. Those brands, such as Bottega Veneta and Coach, who have invested into understanding how the Chinese market is evolving and adapted their marketing mix accordingly, are still experiencing growth north of 20-30%. As wealthy Chinese consumers mature and become more independently-minded, they don't want the same LV handbag as millions of their compatriots. Whilst many are still buying luxury goods for status, they are confident that those who need to know, will recognise their brands without having to brandish garish logos. For products such as wine, they are looking beyond the traditional regions such as Bordeaux and Burgundy and becoming more adventurous. For those who have travelled before, many are over the crowds at mainstream tourist sites, and looking for more unique experiences.
Chinese consumers now account for almost 50% of luxury goods bought globally, including the 73% of goods that Chinese purchased abroad. That's created a lot of buzz around Chinese consumer's appetite for luxury brands, however it is just the just the beginning. In 2010, there were 14 million affluent households in China; by 2020, there'll be 65 million. And those households will be spending a lot more money on premium goods and services than they have to date.
There are forecast to be 180 million consumers who will buy luxury goods by China in 2020, up from 80 million today. By 2016, China is predicted to overtake the US as the world's largest luxury auto market. Tourism catering for wealthy Chinese will make up a notable portion of the 400 million Chinese who will have travelled abroad within five years. Premium Western food and beverages, that simply can't be replicated in China's polluted, pesticide-soaked fields will boom. It's golden times ahead for those high end brands who understand and meet the needs of the Chinese market. Hopefully this week's Skinny will help with that a little more. Enjoy!
See below highlights of the news this week:
Chinese Consumers
Middle Class Sitting in the Driver's Seat for Consumption: 75% of China's middle class are more anxious to buy a car than a luxury watch. Daily use of the Internet is 34% higher for middle class than the general Chinese population. Time spent on digital media was higher than television in this group.
Meet the 2020 Chinese Consumer: The 2020 Chinese consumers is picked to be more mainstream, educated and independent. By 2020, China's luxury consumer base is anticipated to expand from 80 million to 180 million consumers.
Understanding Chinese Consumers: Chinese consumers are brand conscious, but price sensitive. If a brand can signal a higher social and/or economic status, or is deemed safer, Chinese consumers would be happy to pay a premium. If it doesn’t, they become very price sensitive.
Safe Bets for Marketing in China: The good bets to market to Chinese consumers born between 80s and the 90s is social, mobile and gamification. Although mobile marketing is still in its infancy in China, it has much higher penetration than the USA, with users more comfortable about mobile data and transactions.
Luxury Goods
92% of Chinese Consumers Dissatisfied with Luxury Services at Home: Chinese luxury consumers cite poor customer service and poor product knowledge by staff as the primary motives for shopping abroad. 36% of Chinese prefer to shop for luxury goods online. 52% said that social content is the best way to build trust.
Ted Baker Has High Hopes for China: Ted Baker has doubled its number of stores from two to four in China in the past month, with plans to have ten in Tier 1 cities, and possibly a few in Tier 2 cities. Nevertheless, China is yet to "grab hold of the luxury, contemporary, affordable market" TB is in.
Gucci's Expands Logo-Free Collection to Appeal to Chinese Consumers: While Gucci's sales declined in China, many low-key niche brands are soaring -Bottega Veneta grew 30% over the year. Gucci is moving towards more sophisticated products, which has seen its 55% of its handbags sold globally be logo-free, up 20% from a year ago.
Skincare, Apparel Beat Out Wine and Watches in Luxury Forecast: 52% of affluent Chinese consumers expect to spend more on apparel over the next 12 months, up from 38% next year. 50% will be shelling out more on beauty products. Less consumers expect to be spending more on fine wine, shoes, bags, watches and jewellery than last year.
Food and Beverage
China Developing Thirst for Spanish Wine: Exports of Spanish wines to China are up 40% by volume and 44% by value for the year to become the third biggest exporter to China. More consumers are looking at alternatives to French regions as they become more educated about wine and look for value.
Would You Like Fries With Those Spicy Pork McBites?: McDonalds looks to localise its menu further in China in hope of growing its stagnant market share in China's $174 billion fast food industry.
Internet, eCommerce, Mobile & Social Media
China’s Unstoppable E-Commerce Market Ready To ‘Explode’: More than 80% of Chinese consumers say they use social media to learn about products before purchase, and 66% write product reviews after making a purchase.
Sina Weibo: We’re Still Seeing Growth, Now Up to 60.2 Million: Sina Weibo had 60.2 million active users a day, up 11.2% for the quarter, and an 8.3% rise on the quarter before, even amid the crackdown on rumour spreading. Average time spend on Weibo remains unchanged, but mobile usage is on the rise.
Tencent Rises After Boosting Online Game Sales: Tencent's five games released through WeChat and QQ had 570 million registered users within three months. Monthly active users on WeChat grew 15% to 272 million in the third quarter. In related news, Brazilian football sensation Neymar, joins his Barcelona team mate Messi as a WeChat ambassador as the app continues to grow its 150 million overseas user base.
China’s Flirty Momo App Quickly Doubles User-Base: Momo doubles its registered users in four months to 80 million users. Half are active every month and 13 million every day. Earlier this month social gaming integration was released, with 2 million downloads in a week.
Chinese Tourism
China's Luxury Travel Industry to Take Off: Luxury, customized travel for wealthy Chinese consumers is set to take off now 2.8 million Chinese nationals have assets of $1 million or more. At the upper end, ten world trips priced at ¥1.18 million (US$193,610) each sold out in 15 seconds, boat trips to the North Pole had 138 tourists sign up, and there are a number of Chinese with budgets of at least $1 million for travel.
Chinese Can Visit 18 Countries Without Prior Visas: Chinese travellers can now visit 18 foreign countries and regions without acquiring a visa first, but the exit and entry inspection could bar Chinese nationals from leaving the country if their destination does not fit with the government protocol.
Shanghai Firm Buys New Zealand Resort as Chinese Tourism Booms: Shanghai's CRED has become the first Chinese company to make a significant investment in NZ's tourism sector, buying 1,100 hectare (2,718 acre) Peppers Carrington resort in NZ's Northland province, complete with seaside golf course and vineyard, to tap into the growing high end tourism and Chinese travel agency's preference for Chinese-owned resorts.
Property
Chinese Buyers to Have Access to Australian Property Listings Through New Website: REA Group will allow property sellers in Australia to offer their properties for sale in China through their new site myfun.com launching in 2014.
Finance
Alibaba's Internet Financial Products Gain 50 Billion Yuan Within One and a Half Months: Alipay's Yuebao has become China's first public offering to exceed 100 billion RMB ($16 billion), with almost 30 million investors.
Jewellery
Gold Retains Luster for Chinese Consumers as Economy Improves: While gold demand globally shrunk 21% year on year for the third quarter, China's demand for gold jewellery jumped 29%, surpassing India to become the world's largest market. Lowering prices, increased branding from jewellery stores and rising incomes has helped the rise in China. Jewellery style and design is becoming increasingly important with Chinese consumers.
Auto
Audi Bets Chinese Love Small Cars Too After Seeking More Legroom: China's market for premium compact cars is forecast to grow 50% in China next year, five times the mid market brands. China will overtake the US as the top market for luxury cars by 2016 according to McKinsey. SUVs make up 36% of China's premium market.
Volvo Discovers the Benefits of Being Chinese: Since selling to China's Geely for $1.8 billion, Volvo has received a $1.2 billion loan from the China Development bank, opened up Chinese factory capable of producing 120,000 cars a year, and has just been included on the lucrative Chinese Government procurement list. In 2012, the Chinese Government purchased 750,000 new cars, about 4% of China's market.
That's The Skinny for the week! China Skinny would love to discuss how we could help with your marketing, online initiatives or research to take advantage of China's opportunities. Just email us at info@chinaskinny.com or call us at +86 21 3221 0273 so we can learn more about your objectives and let you know how we can help.
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